Former Hershey Co. CEO Richard Lenny apparently violated the Milton Hershey School Trust’s conflict-of-interest policy while serving on the trust board during a controversial 2006 land deal.

However, it’s unlikely Lenny broke an agreement between the state of Pennsylvania and the $7 billion charity.

The difference lies in the amount of money at stake.

At the center of the controversy is the Wren Dale Golf Club, which was then a money-losing course off Route 39 in South Hanover Twp. The golf club bordered the Milton Hershey campus, and the Hershey Trust Co. paid $12 million for it, considerably above its appraised value.

Lenny, who was then on the trust board, had invested $50,000 in Wren Dale. He was one of 26 investors.

According to Internal Revenue Service filings, the trust’s conflict-of-interest policy requires trustees “to avoid all activity that could create a conflict of interest or even give the appearance of a conflict of interest” and to report any potential conflict of interest “as soon as practical” after it’s known.

Hershey Trust spokeswoman Connie McNamara said Lenny was not a member of the executive committee that voted to approve the Wren Dale purchase, but he knew about it and had every chance to alert the trust board.

She said the trust board was never told of any conflict.

The trust board declined to share a copy of its policy with The Patriot-News, but trust Chairman Leroy Zimmerman said it has turned to an outside adviser “to see what, if any, improvements to our procedures are needed.”

If Lenny likely violated the trust board's own rules, he probably did not violate a 2003 agreement giving the attorney general special oversight over the trust.

That agreement requires the attorney general to approve any purchase of goods or services from a business more than nominally owned by a trustee when that trustee would “materially benefit” from the transaction.

It also stipulates that “more than nominal ownership” is determined by the trustee’s percentage ownership interest in the business and “the value of that interest, relative to his or her total net worth.”

According to 2002 mortgage documents, Lenny’s interest in Wren Dale was 3.85 percent. His total compensation from Hershey that year was nearly $14 million.

Lenny’s precise share of the sale is unknown, but 3.85 percent of the purchase price would have amounted to about 3 percent of his annual compensation.

However, according to tax forms filed by the golf club in 2005, Wren Dale had $7.9 million in debt and other liabilities. If those debts were settled as part of the sale, Lenny’s share would have been about $158,000, or 1 percent of his compensation for the year.

According to The Philadelphia Inquirer, actual disbursements may have been as low as $15,000, or about one-tenth of 1 percent of Lenny’s Hershey pay package.

Attorney General Tom Corbett recently launched a probe into the circumstances surrounding the trust’s real estate purchases. His office says the investigation began before the Inquirer reported that those purchases were significantly above market value and, in the case of Wren Dale, had benefited Lenny.

The attorney general’s office denied a Patriot-News Right to Know requests for correspondence between the trust board and the attorney general at the time, citing the ongoing investigation. Lenny did not return calls made to his directorship office in Illinois seeking comment.

On top of Lenny’s involvement, critics have charged that the very idea of the land deal violated the deed of trust that governs the Milton Hershey School.

For example, an Inquirer story said the Wren Dale purchase “appears to violate the strictly worded directives of Milton S. Hershey,” which require all money to be spent “directly on the care and education of the children. No monies are allowed to be or are spent for any other purpose; there are no grants to other organizations or non-MHS related spending.”

That quotation was not from Milton Hershey’s directive. It was taken from a footnote on an IRS form talking about the fact that the school is not supposed to donate to other charities.

In fact, Milton Hershey’s deed explicitly allows the trust board to purchase “at any time ... additional land adjoining the school property or conveniently near to it ... if [the trustees] consider such land necessary or convenient for the purposes of the school.”

School President Anthony Colistra was a trustee at the time of the purchases and a member of the three-member executive committee that inked the deals. He said the purchases were for property immediately adjacent to the school’s campus being developed as part of the plan to expand and serve more students.

That plan, Colistra said, was developed over the course of several years with the help of professional consultants and considerable deliberation by the trustees.

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